Buying A Property Management Company

Buying A Property Management Company

The Needle in the Haystack May Seem Easier

After awhile business brokers get a pretty good sense of which industries and companies are likely to bring lots of buyer attention, and which won’t. Some sectors are a whole lot tougher than others to get a deal done, like it or not.

At ManageVisors we get the most response for property management companies. Just look at how many property management postings you’ll find on BizBen at any given time. There aren’t a lot of choices. So when one hits the market, the owner gets lots of attention.

There are many reasons that so few PM companies actually reach the market. These reasons are why buyers have such a devilishly difficult time actually snagging one. Here are some of the factors why so few property management owners decide to sell their businesses:

Most PM businesses are quite profitable.

The Business Reference Guide, published each year by Business Brokerage Press, shows that profit margins in property management are at the very top range of all industries. It’s not uncommon to see net profit margins above 35% or 40%, which doesn’t happen in other sectors.

Recurring revenues provide strength.

The nature of property management contracts make it a low-risk business where relationships can survive through good times and bad. Look at the Covid pandemic. Many property management owners had outstanding 2020’s.

Few assets to purchase, repair or replace.

Most property management companies require little in the way of equipment, build-out, vehicles or tools. This makes these businesses more desirable to maintain and continue operations than retail, manufacturing or technical businesses, and therefore, less likely to get sold.

Growth through acquisition is quicker.

It’s so much easier to go from 300 doors under management to 3,000 doors under management when you do it through acquisition. The same growth would take many years to achieve organically. This creates an enormous desirability for these businesses, as well as an enormous imbalance between buyers and sellers. Successful operators are far more eager to buy than sell.

Strong word-of-mouth industry.

There are many deals done on an off-market basis. These transactions never reach the public. The exiting owner talks to an acquaintance, accountant or attorney they know, who talks to another person, and all of a sudden a buyer and seller are talking to each other about a purchase transaction.

So how can a motivated buyer overcome these obstacles? It’s challenging but not insurmountable. It does indeed help if you’re already in the industry. That word-of-mouth might come your way and you’ll hear about a potential deal.

Trade groups are a big deal in property management and an excellent door opener for finding deals. Buyers looking for residential property management companies should join NARPM (National Association of Residential Property Managers). I’ve heard stories where owners found buyers simply through the NARPM newsletter. The HOA world has the Community Associations Institute. In commercial property management there’s BOMA. Also look at the Vacation Rental Management Association. All these groups have the potential to lead buyers into an acquisition relationship.

I encourage PM buyers to start contacting their competitors. Draw a 10-mile circle around your company and build a spreadsheet. Don’t worry about seeming like an obnoxious caller. These competitors will be flattered that you’re calling. They may know someone who’s been talking about retiring or moving out of state.

It also helps a lot to have your ducks in a row as a buyer. Talk to SBA or commercial lenders. Get pre-approved at a specific loan amount. Have your personal financial statement, credit reports, bank info and other docs teed up and ready to go, so that a prospective seller will know you’re serious.

Also, engage a professional valuator or business brokerage like ManageVisors, who can help guide you toward making an offer. It’s not easy getting potential sellers to surrender sensitive financial information and operational details, so having a third party on your side can help.

Don’t forget the obvious. Let potential sellers know you are looking to buy a property management business by placing a Business Wanted posting on BizBen. It is the only business listing service on the web which allows you to seek out sellers with a simple, direct message that you’d like to start a conversation about buying their business.

No matter which approach you take as a property management business buyer, you must remember it’s a slow, uphill slog toward finding the right fit. But once you get there, the rewards could be life-changing.

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